Almost half of Canadians who have credit card debt, say they always or often carry an outstanding balance, according to a recent poll.

“If you don’t pay off your balance every month, a credit card is really just another form of debt,” Douglas Hoyes, a bankruptcy trustee with Hoyes, Michalos & Associates Inc. said in a statement. “Let’s call it what it is: a debt card.”
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In the middle of this battle one group of borrowers continues to get hammered. Those people who have kept their balances in check and their default levels continue to fall but there has been virtually no reduction in their interest rates.

What happened to credit card rates? The typical bank card interest rate continues to hover around 20% annually and department store cards are closer to 30%.

“I’m not an issuer making the decision but the hypothesis might be that even though the default rates are down consumer [defaults could rise again],” said Bill Hardekopf, president of Birmingham, Alabama-based http://www.lowcards.com.

His firm tracks about 1000 credit cards south of the border and has found there has been not much movement when it comes to credit card rates. The average credit card interest rate last month was about 14.3%, the same as it was about a year ago.

There is no similar data for the Canadian marketplace but most commentators say there hasn’t been any movement down, although there seems to be better teaser rates that can be found – something the U.S. banned in 2009.

Credit card debt has stabilized to a degree in Canada. A survey from TransUnion, a credit rating agency, found fourth quarter credit card debt rose to an average of $3,637 which was up slightly from $3,633 a year earlier. Only 0.3% of credit cards were delinquent – unpaid for three months – which is down from 0.31% a year earlier.
Despite the better payment history from Canadians, the rates have not come down and that can probably be attributed to a belief that the risk still exists.

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“A credit is an unsecured loan. You get a loan for your house and it’s a secured loan. You don’t make a payment and they take your house,” says Mr. Hardekopf.

Another reason rates haven’t moved much is the increasing cost of rewards. While merchants have complained bitterly about the costs associated with rewards, what is called the interchange fee in some cases doesn’t cover all the bonuses that come with a card.

“There is no question rewards have gotten better, it might be a factor but not the factor,” said Mr. Hardekopf. “Truth be told rewards are only good for the people who pay off their cards every month.”

CIBC World Markets deputy chief economist Benjamin Tal says while it may appear consumers have lightened their debt load, many just moved what they owed to lines of credit.

“They’ve switched their debt and there is evidence delinquencies for lines of credit are going up,” says Mr. Tal.

There is little question the rates remain high because of the perceived risk but Mr. Tal says that’s not the entire story.

“You do have to pay for the goodies,” says Mr. Tal about the cost of the many bonuses that come with owning a credit card.

Laurie Campbell, executive director of Credit Canada, wonders why rates haven’t come down when people are paying their bills.

“I think their argument is that this is just temporary and they need more data before they reduce rates,” said Ms. Campbell, who warns many cards have put in substantial penalties where interest rates climb when you miss paying.

Ms. Campbell says her debt counseling firms biggest issue with clients is credit card debt and many of the people who show up at her door are oblivious to the rate they are paying.

“This is a time when lenders are making some money, more than they were ever before,” said Ms. Campbell.

She adds just because delinquencies are not going up that doesn’t mean much. Many consumers are just making the minimum payment on their card.

This is a time when lenders are making some money, more than they were ever before

“It’s costing them a fortune,” said Ms. Campbell, who acknowledges lower interest rates might just give people an excuse to spend more. “It’s a bit of a double edged sword. You can have a false sense of confidence but you also want people to have the best interest rate possible so they don’t get killed on rates.”

There is some good news for Canadians who are smart enough to look for teaser rates that are offered for a brief period. The caveat with those deals are conditions that can lead to higher costs if you don’t pay in the time spelled out in the agreement.
Kelvin Mangaroo, president of ratesupermarket.ca said his company has noticed a movement towards consumers looking for better options.

“We found that there hasn’t been a trend with lenders raising the interest rates on their cards, but we have noticed an increase in consumer demand for low interest options. Since December, we’ve seen search traffic double for low interest credit cards, and quadruple for low balance transfer options,” said Mr. Mangaroo.

Lenders have noticed and are catering to that market more.

“We’re also seeing lenders introduce more introductory offers targeting these low rate hungry consumers, specifically for low purchase rates, and low balance transfer options. For example, we currently have a credit card offering 12 months interest free on balance transfers – this is the longest interest-free term we’ve seen.”

The bottom line is that while the overall rate hasn’t come down there are deals to be had in the right instances in this low rate environment.

“Those kind of reward and introductory rates are there and better,” said Mr. Mangaroo, adding the penalties are also there for things like missing a payment. “We are just not seeing the general deduction that we have seen in mortgage rates.”

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